Deferring capital gains taxes and then reinvesting while paying less in taxes? Sounds crazy, but it’s legit.
It all comes down to the Qualified Opportunity Zone Program aka the QOZ Program, which was created by the Tax Cuts and Jobs Act of 2017 and is becoming a very popular option for many. Here is why: if you’re selling your business or real estate, you can defer the taxes for 7 years and also reinvest tax free!
Some key takeaways for handling your capital gains:
- You can invest/defer any portion of your gains on the sale of your business.
- With an Opportunity Zone Investment you get the following benefits
- Defer capital gain tax on the sale of your business for 7 years
- Able to invest the money you would have otherwise paid the IRS in capital gain taxes
- Any appreciation on the investment is tax free if held for 10 years
A sample 10 year timeline for using the QOZ Program:
Year 1 – 2020: Invest capital gains from prior investment into a Qualified Opportunity Fund and begin deferring tax
Year 5 – 2025: Tax basis increases from $0 to 10% of the invested capital gains, reducing future tax liability
Year 7 – 2027: Tax basis increases by additional 5%, for a 15% total increase, further decreasing future tax liability
Year 8 – 2028: Pay taxes on original capital gain (less 15% reduction)
Year 10+ – 2030-2048: Pay no federal capital gains taxes on the appreciation of the Qualified Opportunity Fund investment once sold